Enlarge /. Thanks to a SPAC reverse merger in 2020, Fisker now has a market cap of $ 4.1 billion. The Ocean SUV will be the most sustainable vehicle ever sold.
Given the technology disrupting the automotive industry, investors have sought to meet potential winners – be it battery manufacturers, manufacturers of other forms of energy storage, or developers of "lidar" sensors, some of whom believe will be used in the development of self-driving cars are crucial.
According to an analysis by the Financial Times, the nine auto tech companies that were listed through a special-purpose acquisition company (SPAC) last year expected sales of just $ 139 million for 2020. This includes QuantumScape, one of Bill Gates and Volkswagen; the hydrogen truck start-up Nikola; and the lidar company Luminar Technologies.
While the past 12 months have proven to be a hot market for tech companies doing conventional IPOs, bankers and lawyers state that the SPAC process gives companies – and the vehicles they purchase – far greater leeway in disclosing future financial projections . So the nine auto tech companies together forecast their revenues to reach $ 26 billion by 2024.
SPACs often justify stratospheric projections by pointing to large "addressable markets" such as that for electric vehicles, where even a tiny market share can be lucrative and make valuations based on projections of future revenue cheap.
"There is regulatory arbitrage between the SPAC model and traditional IPOs," said Gary Posternack, head of global M&A for Barclays.
“In the marketing process for SPAC combinations, there is the possibility of discussing forecasts or advancing guidelines, while companies cannot provide this information during regular IPOs. Regulators may ultimately try to fill that loophole, but right now the difference is creating real opportunities, ”he added.
The money that goes into the sector – and not just from blank check vehicles – is a bet that EVs will eventually become ubiquitous. Market research firm IDTechEx estimates that electric vehicles will account for up to 80 percent of the global market by 2040, while heavyweights like Volkswagen and General Motors are investing billions of dollars in developing their own models.
But even if electric vehicles become dominant, it won't happen overnight. And with the talismanic feat of electric vehicle pioneer Tesla – now valued at nearly $ 800 billion – underpins the auto tech giant's investment craze, venture capitalists who specialize in helping risky startups are warning of the potential dangers.
"If you assume that your first sales will be in 2025 and you need to develop a model based on a product that you have not yet built, I think that is very difficult," said Arjun Sethi, partner at Tribe Capital, a San Francisco-based venture capital company. "This is one of the reasons you have venture capitalists."
QuantumScape's brief history as a public company highlights the volatility of investors. Due to a surge in demand, the group's shares hit a high of $ 131 in late December, a thirteen-fold increase over the $ 10 that SPACs normally trade at.
Spun off from Stanford University, QuantamScape has released data showing advances in solid-state battery technology that could help improve the range of electric vehicles. The company's market capitalization, which expects no sales through 2024 and three years of profits thereafter, briefly exceeded that of Ford and Fiat Chrysler last year.
Since then, however, the stock has fallen 60 percent from its high. QuantumScape did not respond to a request for comment.
Luminar Technologies is another SPAC with a short but so far noticeable life as a public company. The shares in the group developing laser-based image sensors or lidars that can be used for autonomous driving have almost doubled since it was listed in December.
Founded by 25-year-old engineer Austin Russell, Silicon Valley has signed a manufacturing deal with Volvo that is slated to begin in 2022 to differentiate itself from the competition. The valuation of around $ 10 billion dwarfs the automotive lidar market, which Northland Securities analyst Gus Richard estimates at $ 2.5 billion in 2025. Luminar declined to comment.
A senior Wall Street attorney who has worked on numerous SPAC deals says the enthusiasm of retail investors was a key feature of the mania for the auto tech sector.
"If the trading strategy is 'I will buy across the spectrum because there will be winners and I know there will be losers,' then that is not a crazy investment strategy," said the SPAC advisor. “But not all electric vehicle manufacturers will survive. They just can't, there are too many of them. "
Retail investors were among those hit by the crisis that swept Nikola, an American electric vehicle startup and early beneficiary of the investment craze. After peaking in June, Nikola shares fell in September after short seller Hindenburg Research claimed the company was an "intricate scam." Its founder Trevor Milton, who stepped down in September, has denied any wrongdoing.
Despite the turmoil, shares of all nine auto tech companies that floated SPACs last year are trading well above $ 10, with the average price above $ 20. In fact, nearly three-quarters of the 37 SPAC deals closed last year trade stocks above $ 10. More than a third are trading over $ 20.
Nor is there any evidence that the wave of interest has peaked. Lucid Motors, a California electric vehicle group controlled by the Saudi Arabian sovereign wealth fund and not yet required to deliver a single model, is currently in talks to merge with one of the SPACs launched by former Citigroup investment banker Michael Klein Reason.
Some caution should be exercised, however, that the combination of auto tech mania and SPACs likely remains flammable this year.
"It's not sustainable because things will eventually normalize and investors are now blindly buying these things," said a senior executive at a stock sales bank.
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